Small Is Beautiful: Eight Things To Know in 2013

Community development is about developing the ability of people to deal with whatever problems or situations they have. But the here-and-now problems that face us are as troublesome as the longer-term outlook. What are we to do about political gridlock and expanding economic problems in our own backyards? As communities work to rebuild from the Great Recession, taking the bull by the horns seems to be a popular response. A direct approach means dealing with what is in front of us right now, thinking about what we own and control, and how to smartly bring them together.

The following eight items follow a common theme that could be characterized by "small is beautiful," a phrase attributed to Austrian political scientist Leopold Kohr.

1. Focus on Place

Over the past 30 years or so, communities experienced massive consolidation of their local commerce from banking, health care, agriculture and manufacturing to most types of retail businesses. The focus on place recognizes that "local" matters after all. Doing economic development in small ways may prove equally important. Every community has significance and a unique identity. The history, culture, assets, strengths, weaknesses and skills of the people who live in an area provide the foundation for development. Thought leaders on place include Business Alliance for Local Living Economies (BALLE) for the "local" movement, and Project for Public Spaces for placemaking.

Traditionally, housing occupancy was of economic interest because of the demand created for a supply of housing units. The focus of work in affordable housing was on construction and mortgage finance. Statistics collected and used by market analysts included, among others, permits, starts, construction jobs, absorption rates and mortgage finance. Today, there is growing interest in the financial condition of the housing occupants as indicators of economic and social stability, capability and mobility.

The St. Louis Fed's Center for Household Financial Stability finds that while the status of American household balance sheets has improved somewhat, the financial health of those households remains weak. Close to half of all households surveyed in the 2009 Survey of Consumer Finances had less than $3,000 in liquid savings. In addition, close to half of all Americans consider themselves financially fragile, reporting that they are "certainly" or "probably" unable to come up with $2,000 from any source in 30 days. Financially stable families contribute to local economic development because they spend, save and invest more.

4. Focus on the Firm

In his book, Better Capitalism, Robert Litan uses the phrase "entrepreneurial capitalism" to describe the huge importance of entrepreneurship to overall economic growth. "Changes in seemingly unrelated policy arenas—immigration, education, finance, and federal support of university research—can accelerate America's recovery from recession and spur the nation's rate of growth in output while raising living standards." Entrepreneurial capitalism is at the core of local community development because the focus is on Main Street businesses, local ownership and a DIY approach to jobs. Existing very small businesses have job creation capacity. According to the Association for Enterprise Opportunity (AEO), microbusinesses (companies with five or fewer employees) make up almost 90 percent of all businesses nationwide. In fact, if one in three microbusinesses hired an additional employee, the U.S. would reach full employment. The "One in Three Alliance" is a national movement to increase awareness of microbusinesses and their contribution to the nation's economy. Other approaches that focus on the firm include entrepreneurial development systems and exporting.

5. Focus on Money

How money circulates through a local town or neighborhood is a big issue. Circulation of money involves flow and the speed of the exchanges between people, households and firms. There is also interest in creating more options for the local storage of money. The idea is to store locally, grow local circulation and slow down the rapid exchange of money outside the neighborhood or town. Tools and techniques to do this include community-based banking; microbanking branches; mutual, cooperative and credit union structures; community foundation affiliate pools; loan funds; and crowdsourcing.

In conjunction with its "One in Three" campaign, AEO and its campaign partners are piloting a new technology platform to bring working-capital loans and much-needed services to underserved entrepreneurs and communities. TILT Forward is an innovative underwriting technology platform powered by On Deck Capital that allows microbusinesses to apply for working-capital loans of up to $150,000. In addition to accessing capital through the platform, microbusinesses and the organizations that serve them can also request technical assistance and capacity building from campaign partner Bankers without Borders® and its reserve corps of more than 8,500 skilled volunteers.

There is a new realization that improved local access to fresher, more organic and healthier food influences the capability of people to become shapers of their neighborhoods. Food deserts are places that have low access to these choices. Although there is growing demand, growers and producers are confronted by access-to-market issues. Regional food hubs are emerging as a solid approach. The growth in the focus on food has been explosive and some of the primary thought leaders include the National Good Food Network and USDA.

7. Focus on Success

Common measures of success are the decline of the national unemployment rate, groundbreaking for a new building, election results, investment and lending statistics, and awards. Communities are coming up with more unique measures for what success means locally. These measures focus on a balance and connection between development (what are we learning) and growth (what are we counting). Success in many places means learning how to become more equitable, viable, sustainable, livable, walkable and green.

8. Focus on Leadership

Andrew Hargadon thinks the two most difficult types of capital are intellectual (know how) and social (know who) capital. Building relationships that extend beyond your known field or network is how to grow innovation and the economy. Tri-sector leadership calls for greater balance in leadership experiences in the business, government and nonprofit sectors. Leadership means bringing a unique ability to navigate, align and draw on strengths of a wide range of actors to address big issues. Successful economic development may not depend solely on writing a winning grant, participation in a program, tax credits, etc., but also on learning to improve the capacity in a local place across sectors.

Small and local are beautiful because that is where the detail and nuance may be seen. These eight items are some of the prominent themes in community and economic development this year. What would you add to the list of things to know for 2013? Please email your comments to me at matthew.w.ashby@stls.frb.org.